The suit alleges Amazon’s in-app system permitted children to rack up unauthorized charges for purchases in apps such as “Ice Age Village,” where players use real money to buy virtual acorns and coins for use in the game.

“Even Amazon's own employees recognized the serious problem its process created. We are seeking refunds for affected parents and a court order to ensure that Amazon gets parents' consent for in-app purchases," said FTC Chairwoman Edith Ramirez, in a written statement.

Amazon employees called the unauthorized billing dilemma a “near house on fire,” according to internal emails the FTC found.

When kids download games on mobile devices, it is sometimes unclear which virtual items cost real money and which cost virtual money, the FTC statement says. In March 2012, Amazon required a parental password to spend more than $20 on a virtual item. Further, in 2013, a complaint against Amazon argued that even when a parent was prompted to insert a password, that would lift the veil, allowing kids to make charges without needing another password re-entry for anywhere from 15 minutes to an hour.

One little girl had made $358.42 in charges through these applications without her mother knowing, according to the FTC statement. Charges made inside of an app are nonrefundable.

The FTC’s litigation against Amazon follows a similar case that the U.S. regulators brought against Apple earlier this year. Apple settled the complaint for $32.5 million. “You cannot charge consumers for purchases they did not authorize,” Ramirez said when Apple settled.

Catherine Clifford

Catherine Clifford is senior entrepreneurship writer at CNBC. She was formerly a senior writer at Entrepreneur.com, the small business reporter at CNNMoney and an assistant in the New York bureau for CNN. Clifford attended Columbi...